Just In Time

Introduction to Just-In-Time (Just-In-Time Inventory Management System)

Just In Time (JIT) inventory refers to the production of goods to meet customers’ exact demand. This system increases the efficiency and productivity of the system. It also reduces the costs incurred in storing the raw materials otherwise. This avoids waste generated by overproduction, accumulation of inventory, and other factors. 

What Is JIT (Just-In-Time Inventory Management System)?

Just In Time is an inventory management strategy that aims to minimize inventory and increase efficiency. It aligns raw material orders from suppliers to the production schedules. 

In the 1970s, Toyota, a car manufacturer, adopted this system. Thus, this management system is also known as the Toyota Production System (TPS). This strategy calls for manufacturing materials as per the demand at the particular moment and delivering them immediately before they are required to reduce storage costs, thereby increasing inventory turnover. 

Importance of JIT (Just-In-Time Inventory Management System) Inventory Management

Companies use the Just-In-Time inventory management system to eliminate raw materials, inventory, product storage costs, etc. This system increases the efficiency and productivity of the system, reducing the costs incurred in storing the raw materials otherwise. Companies avoid waste generated by overproduction, accumulation of inventory, and other factors. 

Earlier, raw materials and inventory were considered a company’s asset. However, with the changing time and introduction of the JIT inventory management system, companies can save resources and costs in managing raw materials and inventory. Saving funds from this aspect of the business, the company owners can now focus on other essential aspects, such as scaling the business, customer service, etc. 

The JIT inventory management system makes the small-scale company even more technologically sound and efficient. Fewer workers are required in the team, which reduces the costs of manpower. The people working in the company are trained to handle computers, improve communication, and predict sales daily.

History of JIT (Just-In-Time Inventory Management System) Inventory Management

Just-In-Time originated in Japan and is generally introduced as a technique associated with the Toyota Company. Within Toyota, Taiichi Ohno is regarded as the father of this technique. It was initially known as the Toyota Production System (TPS) and is very different from the traditional way of looking at the production system. 

After the Second World War, Japan saw a diminishing market share in the auto industry. This was when the president of Toyota Motors realized that if they didn’t catch up with America in three years, Japan would not survive in the automobile industry. At the time, one American car worker produced approximately nine times one Japanese car worker. 

After researching the American markets, Taiichi examined that the American manufacturers used the traditional methods of producing items in ‘lots’ or ‘batches’. But this was not possible in Japan, as the domestic demand was low, and people demanded small quantities of different models. This was when Taiichi came up with a new production system based on eliminating waste where items are manufactured as and when needed. This is the Just In Time method. 

How Does Just-In-Time Inventory Management Work?

The Just-In-Time inventory management system is a supply chain system that lets you reduce stock inventory expenses and increase workflow efficiency. 

The Just-In-Time inventory management system process diagram and steps:

The Just-In-Time inventory management system’s workflow is identical in all companies and industries. Initially, a consumer places an order with the manufacturer/ producer of the product. Once the order is confirmed, the manufacturer approaches their regular suppliers for the raw materials required for production. The suppliers acknowledge and then supply the raw materials back to the manufacturer. The manufacturer processes the raw material, assembles or produces the final product, and sells it to the consumer, who then buys and reviews the product.

Steps in the cycle of continuous improvement of Just-In-Time inventory management system inventory:  https://www.netsuite.com/portal/assets/img/business-articles/inventory-management/Just-In-Time inventory management system-process-diagram.png                                                      

1. Design – The Just-In-Time inventory management system process starts by reviewing the product design, manufacturing and personnel planning, etc. Further, these plans are implemented to minimize waste and reduce hurdles in the process.  
2. Manage – A total quality management review is necessary to ensure continuous growth by defining the roles and responsibilities of workers, stabilizing schedules, and identifying quality measures.
3. Pull – Inform the team about the production and withdrawal methods. 
4. Establish – Build a good relationship with the vendors and learn how to make the most of it. 
5. Fine-tune – Limit inventory movement, and identify inventory needs, policies and controls required.
6. Build – Train the employees in your team with the skills essential for the process. Conduct empowerment and training sessions for the team to encourage them for smooth working.
7. Refine – Reviewing the entire process to reduce the number of levels in the production process, simplify the system and make it more confined.
8. Review – Analyze the root cause of problems. Emphasizing improvements of the JIT system.

Advantages of Just-In-Time Inventory Management System

1. Reduces inventory waste – 

When the stock of the products is not accumulated and gets sold out quickly, it prevents inventory of damaged or obsolete products and reduces waste. This also saves money by preventing investments in unnecessary stock and reducing the need to replace the old stock with new. 

2. Smaller space needed – 

With the Just-In-Time inventory management system, there is no accumulation of inventory. The manufacturer/ producer does not require a huge warehouse or storage space to store materials or goods. This will reduce the space the producer needs to rent or buy.   

3. Gives the manufacturer more control – – 

The Just-In-Time inventory management system gives the manufacturer complete control over the entire manufacturing process. It works on a demand-based order system where the manufacturer can quickly respond to the customers’ needs by increasing or decreasing the production of the goods. They can increase the product manufacture with greater demand and decrease the production of a product with comparatively lesser demand. 

4. Smoother production flow –

The Just-In-Time inventory management system can eliminate delays and issues across the entire production process. The lead time is decreased for the customers as JIT reduces the manufacturing time leading to shorter production cycles. As the products are in small quantities, defects can be easily spotted and corrected. This results in fewer defective products and a better customer experience. 

5. Local sourcing –

The JIT inventory management methodology suggests that the manufacturer starts manufacturing a product only when an order is placed. They must source the raw materials locally to deliver to the unit in less time. This will reduce the transportation time and the costs involved in the process. It also allows the raw material industries in the area to flourish and increase employment rates.

6. Increases efficiency and customer service –

The JIT system eliminates the costs behind extra raw materials, accumulated inventory, and huge storage spaces. It increases the efficiency of the process, which raises the inventory turnover ratios. The high inventory turnover ratios prevent the products from being left in the stock for too long and becoming obsolete. Ordering the raw materials as per demand prevents them from getting accumulated. So, if the process is efficient enough, the employees will have more time to focus on giving customers better service. 

7. Enhances supplier relations – 

A strong and good relationship with the suppliers is crucial for businesses using the Just-In-Time inventory methodology. It is the manufacturers’ ability to place a last-minute order for materials and rely on timely delivery. This requires suppliers who can be trusted. 

8. Smaller investments – 

A JIT inventory management system is the best for small-scale production units. These units do not have the funds to purchase huge amounts of stocks at once. Ordering raw materials when required enables the producer to maintain a smooth and healthy cash flow.

JIT Inventory Methodology

The Just-In-Time inventory management methodology is a well-built system where the business owner needs to order the stock from the suppliers just before the production starts to deliver the product to the customer at the right time. The main purpose behind this strategy is to have the stock as per demand and not in advance. It reduces storage costs and prevents the wastage of raw materials. For this, the business owner must have long-term ties with reliable vendors willing to work in this manner. The vendors must be able to fulfill the demands at very short notice without delay for smooth working. 

The business needs to have a team of employees with good analytical, computer, and communication skills. The team can work to predict the sales daily and convey the information to the other company people and the vendors. They are also required to constantly monitor the business for improvement and growth of the system. The aim is always to have sufficient stock, not exceed, to avoid wastage and unnecessary expenses.

The Just-In-Time inventory management methodology can improve a business in the following ways:

1. The JIT system sources the raw materials or items required for processing on demand or when the customer confirms an order. This supply management with production improves the flow of goods and reduces storage requirements.
2. JIT focuses on eliminating waste from the production process, which leads to redesigning the workspace to ensure the minimization of product transportation and the elimination of redundant tasks. 
3. The earlier manufacturing processes included manufacturing in ‘batches’ and ‘lots’. However, JIT makes it possible to manufacture in minimum amounts to avoid unnecessary costs. 
4. Product quality is improved, as waste is eliminated and zero-defect products are achieved. 

Disadvantages Of Just-In-Time inventory management system Inventory Management

1. Difficulty with surprise extra business –

A big disadvantage of the Just-In-Time inventory management system is that it becomes difficult for the manufacturer with bulk booking on short notice. 

For any business, a customer ordering a substantial amount of product is positive. But, because of the nature of this process which is ordered as per demand, it might sometimes not work in the producer’s favor. For example, a medium-sized company can make their new clients wait a little longer for their order. However, small businesses don’t have this option and can’t get raw materials on short notice.  Even if they get a supplier to supply the raw material, it will cost them more than the normal supplier, bringing down their profit margins.

2. More planning and training required – 

Small or midsize businesses use pen-paper mode or simple apps to maintain their inventory by hand. This is done probably once or twice a month to keep track of what raw materials are required and can easily teach this process to the employees. However, when a company uses the Just-In-Time inventory management system, the entire process automatically becomes a bit more complex and training becomes mandatory. They need to be accurate about the inventory details and need to have computer knowledge. The company might have to spend more on skilled labor and technology costs.

3. Dependency on supplier –

The JIT system requires a strong and good relationship with the suppliers so that the manufacturers can place last-minute orders and get timely delivery. However, this limits the owner’s ability to explore other suppliers and their prices. 

Suppose a supplier across town offers the same raw material at half price. In that case, the owner cannot just place a single order with the supplier before returning to the usual supplier. They can change their supplier but can’t go around simply shopping for the best prices. 

Another problem the owners face is when the suppliers increase the price of the products, and the owner is stuck paying huge amounts for the product until he finds a new supplier. 

4. Higher investments in technology –

The Just-In-Time inventory management system is a complex method. Companies and members cannot utilize it without a good computerized system. The company  a variety of different programs like merchandise tracking, order generating, sales forecasting, etc. This will require huge investments in both hardware, as well as software systems. To operate these systems, they also need to invest in skilled staff. 

Once the programs are installed, and the staff is trained, the entire firm depends on the computer setup for a smooth working process. However, some technical problems may arise for which IT professionals are required. As no company can afford to go offline for days because of a bug or defect in the software, and emergency repair can be costly and sometimes unavailable. Thus, business owners must have a backup plan.

5. Problems with natural disasters –

Natural disasters like tornadoes, hurricanes, floods, etc., can hugely affect businesses. Companies that use the Just-In-Time inventory management system have a deeper impact as they don’t have enough inventory for future use. 

The danger isn’t only to the businesses but also to the areas where the suppliers of these businesses reside. A business using the JIT system will keep enough raw materials for two-three days, or maybe for a week predicting their sales. However, suppose the raw material supplier situated in the other city is hit with a natural calamity. In that case, the business owner will have little to no time to find a new supplier with a similar quality of products and price. If they fail to find a supplier, they will instantly lose inventory and customer base.

6. Problems with customer satisfaction –

If a business goes out of inventory, its immediate effect is the loss of customers. Hence, one system breakdown can cause the company to lose all the trust created among the people. In a world of social media, where public reviews play an important role for businesses, one bad review can be enough to hurt a small business severely. If the company goes out of stock, and the customers have to wait longer than they want to receive their orders, it might become a real problem.

7. Tight supply chain means less control –

The Just-In-Time inventory management system makes it difficult to change things quickly according to the economic forces. 

For example, a cake shop in a locality generally knows the requirements of the customers in the neighborhood and orders the materials accordingly. However, if they find out about an urgent order for an upcoming wedding, they will not be able to take responsibility confidently. Even if the shop manages to get the order, and if the supplier is out of stock for the particular product, finding a supplier who can supply the same product at the same cost will be difficult for the cake shop owner. 

So, any sort of hurdle in the supply chain system using the JIT inventory management system will ultimately impact the sales and revenue of the business. Hence, fewer options to offer the customers, and the inability to change business plans on such short notice, can affect the business adversely.

Who Uses Just-In-Time Inventory Management?

1. Restaurants –

Restaurants implement a Just-In-Time inventory management system to reduce food and inventory wastes, reduce costs, increase productivity, and manage human resources. These businesses can opt for JIT only if they wish to undergo technological changes and access sufficient predictive information about the day-to-day business requirements.  

2. Fast Fashion – 

The most famous fast fashion brands like Zara and Uniqlo use the Just-In-Time inventory management system to produce several products. These brands partner with large textile manufacturers. Through technology, they monitor weekly sales patterns and order the garments just before the stores likely need them. This way, these brands rarely have excess inventory and spend less money on storing goods at their warehouses.

3. Print on demand –

 Print-on-demand businesses like the self-publishing sectors also use JIT inventory management system inventory system. These businesses keep the master manuscript of the books in hand. But texts are printed and assembled only when the retail sale is made, and there is a demand for the book. This reduces the accumulation of unsold inventory and book store returns as well.  

4. Dropshipping –

Dropshipping is an e-commerce retail model which works through third-party suppliers who manufacture products on a JIT inventory management system basis. When the retailer receives an order, they pass on the specifications to the supplier who creates the product. This method prevents the retailers from producing any leftover excess inventory.

Which Companies Use the Just-in-time Inventory Management System?

1. Apple –

Tech companies like Apple have also utilized the Just-In-Time inventory management system to make their manufacturing process successful and smooth. Apple has only one central warehouse in the US. Its key suppliers spread across the world are responsible for keeping the inventory in hand, making Apple free from this responsibility. This requires a strong and good supplier relationship, reducing overstock and huge warehouse costs. Most of the inventory of Apple products is held in their retail stores, and dropshipping is made into use in the case of online orders. 

2. Harley Davidson –

Harley Davidson is one of the companies that has benefitted the most from implementing the Just-In-Time inventory management system. Its use of the JIT system was mostly seen as a transformation from a manufacturer being inefficient and facing problems of extra inventory to a manufacturer being able to meet its demands efficiently in a very short notice period. The use of the JIT system has decreased the company’s inventory levels by 75% and increased its productivity.

3. Dell –

Companies like Dell use the JIT system in their manufacturing and production activities. Dell’s direct model business strategy was possible because of the JIT system. Dell has been direct with its customers and uses the JIT system to customize the production process and inventory management. This has helped the company reduce waste by producing only after receiving a confirmed order and delivering it at the right place and time.

4. McDonald’s – 

Fast food companies like McDonald’s also use a Just-In-Time inventory management system. Such restaurants serve their customers daily by preparing and assembling their food items only when an order is placed. They have all the ingredients required in hand, but the assembling is done only when a customer places an order. This is done to maintain a uniform customer experience throughout the day. It has also become a marketing strategy for these fast food companies to deliver their customers the most freshly made food products. This helps the business owners spend a lot of money and prevents food from getting wasted while keeping their customers happy with timely delivered and freshly made food.

5. Toyota –

Toyota is considered the main originator of the Just-In-Time inventory management system. This strategy aims to reduce inventory costs and avoid the wastage of products. The main concept behind it is not to order the raw materials for production unless the manufacturer receives a confined order. This system has allowed Toyota to keep a minimum amount of inventory with them, which means lower costs on storage and that they can quickly adapt to the changes in demand without having to worry about additional expenses.

6. Zara –

Fashion giants like Zara are one of Europe’s largest, fastest-growing clothing retailers. Zara uses IT technologies like the JIT system to analyze customer preferences. The managers of different stores send feedback from customers and the orders straight to the designers. They are also informed about the fast-changing trends, the styles of the customers, and most importantly, the dislikes of the customers. This process has resulted in a well-managed inventory system, reduced inventory costs, and accumulated obsolete products. This has put Zara in a position where it can quickly respond to any changes in demand.

Business That Should Avoid Just-In-Time Inventory

Not every business has the capacity and resources to use JIT inventory methods. It is said that the Just-In-Time inventory management system inventory methodology is suitable for fast-to-medium moving businesses only where replenishment is more frequent. Businesses that process only a handful of orders annually are said to be slow movers, where the JIT system is not very effective. 

Businesses that source materials internationally should avoid the Just-In-Time inventory management system inventory system. It is believed that dealing with the suppliers of the required materials is time-consuming. So, by keeping a lot of stock in hand, the company can focus on other aspects like scaling the business instead of worrying about their orders with international suppliers. 

Companies with certain operational limitations should also avoid using the Just-In-Time inventory management system. If you:

1. Don’t know how to track your day-to-day customer demand to identify your inventory needs.
2. Don’t have reliable employees who communicate well about the supply issues to the suppliers.
3. Can’t delay the orders without impacting your business.
4. Aren’t confident that your supply chain will deliver the materials on time.

Then you are advised to wait on implementing the Just-In-Time inventory management system inventory methodology.

How To Implement Just-In-Time Inventory As A Small Business?

The Just-In-Time inventory system can help small businesses start by reducing the amount of capital required to get the business up and running. The company spends less money on unused inventory and needs less storage space. However, this kind of inventory method works only if the company has a well-developed inventory management system and reliable suppliers. Following are a few implementation tips of Just-In-Time inventory for a small business :

1. Educations and training employees – 

Adopting a new work methodology requires a lot of absorption and training of employees. Hence, the company needs to train the people involved in the process to avoid process failures and other operational inefficiencies. The employees need to know exactly why efficiency matters and how they can achieve it. They need to know what to do before and after receiving an order, how to develop internal process charts for manufactured goods, and flowcharts that can demonstrate the entire life-cycle of a product.

2. Know the scope of change – 

Companies need to identify the scope of change. Some companies are in a good position to implement the Just-In-Time inventory management system, while some have to adapt the concept slowly over 5-10 years. For others, the system is just not the right fit. 

3. Good communication in the organization – 

Establishing good communication across the organization is the essential step in making changes in the system. Communicating continuously with suppliers, employees, and consumers is essential. You need to be able to reach out to your supplier at any moment, especially in times when there need to be any adjustments. Since a Just-In-Time inventory management system inventory method is about efficiency, time is the biggest resource, and so is an effective communication system. It minimizes costs and helps deliver the best quality products to the customers.

4. Find reliable suppliers – 

A strong and good relationship with the suppliers is very important for businesses using the Just-In-Time inventory methodology. The Just-In-Time inventory management system is the ability of the manufacturers to place a last-minute order for materials and rely on timely delivery. This requires suppliers who can be trusted on. Therefore, before entering into shipment contracts it is advised for the businesses to check the suppliers’ history If they can process the orders on a timely basis, and can take orders on short notice.

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